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Chemicals and energy group Sasol expects to realise more than $1-billion from the disposal of noncore assets in the coming few years. However, besides its Canadian shale-gas assets, which have been formally put up for sale, the group is yet to announce which other assets will be sold.

Speaking at the group’s interim results presentation in Johannesburg, joint CEO Stephen Cornell reported that the process of identifying noncore assets was about 70% complete and that further announcements would be made during the course of the year.

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The disposal process had arisen following a recent strategic review, which concluded that the company should no longer pursue greenfield gas-to-liquids projects and should instead focus of organic and acquisitive growth prospects in speciality chemicals, Southern African fuel retailing, as well as gas and oil exploration and production in Mozambique and West Africa.

“We have gone through a very rigorous process of dividing up the company into about 100 selected assets and evaluating, in each of those 100 assets, whether they are returning the kind of return on investment that we would prefer to see,” Cornell explained.

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The group, which had a market capitalisation of between $25-billion and $30-billion, had no intention of selling “large parts of the company”, and remained committed to both South Africa and Mozambique.

“The only asset we have announced to the market is the Canadian shale-gas asset. We have started the process and we are engaging a financial adviser. [As for the other assets] we can’t tell you ahead of time, for obvious reasons, and predict where it will be in terms of geography and which assets it will be.”

US TAX WINDFALL
The company also announced that the returns associated with its $11.13-billion Lake Charles Chemicals Project (LCCP), being built in Louisiana, in the US, were set to improve by around 0.5 of a percentage point, owing to recently announced tax reforms.

The group was still in the process of verifying the impacts, owing to the fact it involved around 24 different pieces of tax legislation. However, CFO Paul Victor described the reforms as “positive” for Sasol, as well as the cash flows associated with the LCCP project.

“The changes in taxes will have an impact of around about 0.5 of a percentage point on the internal rate of return of the project measured over the life. What does that mean in dollars? We see the cash injection, over the life of the project, amounting to $500-million – it’s quite significant.”

In addition, while Sasol had previously anticipated being in a net taxpaying position by 2023, the schedule would shift to around 2027/28, or later.

Cornell said the current focus at LCCP was on commissioning, operations and business readiness, with the project “on track for start-up of its first units in the second half of the 2018 calendar year”.

“We are engaging prospective new markets and customers, but contracts for major distribution channels are in place.”

The LCCP would treble Sasol’s chemicals production capacity in the US and could add up to 20% to earnings before interest, taxes, depreciation and amortisation, or $1.3-billion by financial year 2022.

For the six months ended December 31, Sasol reported ‘core’ headline earnings a share of R18.22, a 5% rise on the comparable interim period in 2016/17. The board declared an interim gross cash dividend of R5 a share.

CURRENCY HEDGE
Joint CEO Bongani Nqwababa said that the group was factoring in continued volatility in product prices, as well as the rand/dollar exchange rate.

Sasol’s earnings outlook remained highly sensitive to both factors, with a 10c change in the value of the rand to the dollar and a $1/bl change in the oil price each affecting net profitability by R820-million.

The group expected the rand to trade between R12.50 and R14 to the dollar during the second half, which was materially weaker than its current level of better than R11.60. It was also expecting average Brent crude oil prices to remain between $55/bl and $65/bl.

Asked what action the group was taking to lessen the impact of the strong rand on earnings, Nqwababa pointed to Sasol’s hedging programme, which he described as being “very good”.

“We are covered already for the next 12 months and we are hedged at between R13 and R15 to the dollar. So even if the rand is strong like this, we get it at our hedged levels.”

He added that its oil price hedges had also been structured, through the payment of a premium, to enable Sasol to benefit from the upside as prices increase.